Cotton qualityloss adjustment may provide additional disaster benefits.

by Jay Yates, TCE Risk Management Specialist

Click here to download a .pdf file containing this information. 

Think you donŐt qualify forany disaster payments on a farm because you didnŐt receive an insurance check? Think again. Because of the quality loss provision of the 2001/2002 Crop DisasterProgram you may be eligible for payments if the loan value of your cotton fallsbelow the adjusted county loan rate, even if you had no production loss.

 

Method 2

Since losses are calculatedby farm insurance unit, some units may not qualify for a payment in the yearselected for the disaster program. However, production to count is decreasedif your average loan rate falls below the adjusted county loan rate. For 2001the adjusted loan rate is $0.4842794 if your cotton was classed in Lubbock and$0.498065 if it was classed in Lamesa. For 2002 the rate is $0.4835698 inLubbock and $0.499065 in Lamesa.

 

For example: Farmer White hada farm unit of 100 acres of irrigated cotton with an APH of 500 pounds in Halecounty in 2002. His production on this unit was 48,000 pounds or 480lbs./acre. Since he carried multi-peril crop insurance at the 65% level, hehad no loss and figures there is no point turning in production from this unitfor a disaster payment. The county average yield for Hale County, fordetermining disaster losses, is 707 pounds. Since the county average is higherthan his APH on this unit, payments will be figured on 65% of 707 lbs., or 460pounds. Again, it would appear on the surface that he has no loss. However,rain in October delayed harvest and adversely affected the quality of thecotton on this unit, resulting in an average loan value of $0.415 per pound. His production to count is reduced by a factor of 0.858 (0.415/0.4835698)yielding 412 lbs./acre. The following worksheet demonstrates the effect of thelower production to count:

 

Payment Calculator for FSA Crop Disaster Program - 2002

Enter your data in shaded areas

 

Adjusted

Your share % of harvested production

100%

100%

Planted acres

100.0

100.0

APH yield

500.0

500.0

1996-2000 county average yield

707.0

707.0

Harvested production (production to count)

48000.0

41194.0

Did you purchase crop insurance? (Enter 1=yes or 0=no)

1

1

Crop was harvested=0, un-harvested=1

0

0

Producer-received gross crop ins. indemnity

$ -

$ -

Producer-paid crop insurance premium

$ 850.00

$ 850.00

APH crop insurance price election

$0.52

$0.52

 

 

NASS national market price

$0.405

$0.405

Higher of APH or county average yield

707.0

707.0

Quantity payment rate

65%

65%

Production harvest factor

100%

100%

Production guarantee (disaster level)

45955.0

45955.0

Your share of production (production to count)

48000.0

41194.0

Net production for payment (payment quantity)

0.0

4761.0

Price payment rate (50% if insured)

50%

50%

FSA gross disaster payment

$0.00

$1,237.86

 

 

Higher of APH price or market price

$0.52

$0.52

Value of crop @ 100%

$36,764.00

$36,764.00

Value of crop @ 95%

$34,925.80

$34,925.80

 

 

Net Indemnity

$0.00

$0.00

FSA gross disaster payment before 95% cap

$0.00

$1,237.86

Value of crop harvested

$24,960.00

$21,420.88

Total of above

$24,960.00

$22,658.74

Does above total exceed 95% value?

NO

NO

If "y", by how much?

$0.00

$0.00

Net FSA disaster payment

$0.00

$1,237.86

 

As you can see in thisexample, what appears to be no loss at all, qualifies for a payment of$1,237.86 when the quality loss adjustment is applied.

 

 

Method 3

Another method for figuringquality loss is on a bale-by-bale method. This method pays only on the balesin which there was a 20% or greater loss in the value of the cotton. There arefive tiers to the bale method of calculating payments. When evaluating balesto see if they qualify for a payment, it is not necessary to know which tierthe loss falls into, only to know that for crop year 2001, the loan value ofthe bale would have to be below $0.387424 in Lubbock and $0.398452 in Lamesa. For 2002 the value would have to be below $0.386856 in Lubbock and $0.399252 inLamesa. If the bale value falls below the appropriate number, that balequalifies for a payment. The five tiers and the corresponding payment ratesper pound are listed in the following table:

 

Tier

Loss

Quality Payment Percentage

2001

2002

I

20-29.9%

25%

0.063375

0.054925

II

30-49.9%

40%

0.1014

0.08788

III

50-69.9%

60%

0.1521

0.13182

IV

70-89.9%

80%

0.2028

0.17576

V

90-100%

95%

0.240825

0.208715

 

Multiplying the number fromthe appropriate column, 2001 or 2002, with your share of production will giveyou the expected payment for that bale.

 

As an example of thebale-by-bale method, Farmer Brown, also from Hale County, had no productionloss and his average loan value was $0.4955 in 2002. However, he had onemodule left in a low spot in the field during that same October storm that cameback with much lower than average loan values. The worksheet below illustratesthe payment he would have coming on these 11 bales:

 

Bale-by-bale Method of Calculating Quality Adjustment

Enter Your Data in Shaded Areas

 

 

 

Crop Year

2002

 

 

 

Classing Office

Lubbock

 

 

 

Your Share % of Production

100%

 

 

 

Adjusted County Loan Rate

$ 0.4835698

Loan Value Threshold

$ 0.3868558

Payment Rate

$ 0.5200

 

 

 

Bale Number

Bale Weight

Loan Value

Value Loss %

Payment

2125166

486

$ 0.3387

29.96%

$ 26.69

2125167

485

$ 0.3162

34.61%

$ 42.62

2125168

473

$ 0.3817

21.07%

$ 25.98

2125169

477

$ 0.3387

29.96%

$ 26.20

2125170

482

$ 0.3372

30.27%

$ 42.36

2125171

496

$ 0.3387

29.96%

$ 27.24

2125172

490

$ 0.3417

29.34%

$ 26.91

2125173

495

$ 0.3427

29.13%

$ 27.19

2125174

501

$ 0.3382

30.06%

$ 44.03

2125175

519

$ 0.3387

29.96%

$ 28.51

2125176

532

$ 0.3387

29.96%

$ 29.22

Total

 

 

 

$ 346.95

 

In this example, FarmerBrown qualifies for a payment of $346.95 on this one module of low-grade cottoneven though he had no other losses. In these days of low margins, every pennycounts.